CHAPTER 6 Strategy Formulation: Business Strategy

STRATEGIC MANAGEMENT & BUSINESS POLICY

THOMAS L. WHEELEN J. DAVID HUNGER

11TH EDITION

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Business Strategy

Focuses on improving competitive position of companys products or services within the specific industry or market segment

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Porters Competitive Strategies

Competitive Strategy -Low cost Differentiation Direct competition Focus on niche

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Porters Competitive Strategies

Generic Competitive Strategies -Lower Cost strategy

Greater efficiencies than competitors

Differentiation strategy
Unique/superior value, quality, features, service

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Porters Competitive Strategies

Competitive Advantage -Determined by Competitive Scope Breadth of the target market

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Porters Competitive Strategies

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Porters Competitive Strategies

Cost Leadership -Low-cost competitive strategy Broad mass market Efficient-scale facilities Cost reductions Cost minimization

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Porters Competitive Strategies: Low Cost Leadership

Approaches to Securing a Cost Advantage

Approach 1
Do a better job than rivals of performing value chain activities efficiently and cost effectively

Approach 2
Revamp value chain to bypass costproducing activities that add little value from the buyers perspective
Control costs! By-pass costs!
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Porters Competitive Strategies: Low Cost Leadership

Approach 1: Controlling the Cost Drivers

Capture scale economies; avoid scale diseconomies

Capture learning and experience curve effects

Manage costs of key resource inputs Consider linkages with other activities in value chain

Find sharing opportunities with other business units

Compare vertical integration vs. outsourcing Assess first-mover advantages vs. disadvantages

Control percentage of capacity utilization

Make prudent strategic choices related to operations
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Porters Competitive Strategies: Low Cost Leadership

Approach 2: Revamping the Value Chain

Make greater use of Internet technology applications

Use direct-to-end-user sales/marketing methods Simplify product design Offer basic, no-frills product/service Shift to a simpler, less capital-intensive, or more flexible technological process Find ways to bypass use of high-cost raw materials Relocate facilities closer to suppliers or customers Drop something for everyone approach and focus on a limited product/service
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Porters Competitive Strategies

Differentiation
Broad mass market Unique product/service Premiums charged Less price sensitivity

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How to Achieve a Differentiation-Based Advantage

Approach 1 Incorporate product features/attributes that lower buyers overall costs of using product Approach 2 Incorporate features/attributes that raise the performance a buyer gets out of the product Approach 3 Incorporate features/attributes that enhance buyer satisfaction in non-economic or intangible ways Approach 4 Compete on the basis of superior capabilities Prentice Hall, Inc. 2008

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Porters Competitive Strategies

Cost-Focus
Low-cost competitive strategy Focus on market segment Niche focused Cost advantage in market segment

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Porters Competitive Strategies

Differentiation Focus
Specific group or geographic market focus Differentiation in target market Special needs of narrow target market

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Porters Competitive Strategies

Stuck in the middle

No competitive advantage Below-average performance

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Risks of Generic Strategies

Risks of Cost Leadership Risks of Cost is not Cost leadership Leadership Cost leadership is not sustained: sustained: imitate. Competitors Competitors imitate. Technology changes. Technologyfor cost Other bases changes. Other bases for cost leadership erode. leadership erode. Proximity in differentiation is Proximity in differentiation is lost. lost. Cost focusers achieve even Cost focusers achieve lower cost in segments. even lower cost in segments.

Risks of Differentiation Risks of Differentiation Differentiation is not Differentiation is not sustained: sustained: imitate. Competitors Competitors imitate. Bases for differentiation Bases less important to become for differentiation become buyers. less important to buyers. Cost proximity is lost. Cost proximity is lost. Differentiation focusers Differentiation focusers achieve even greater achieve even segments. differentiation ingreater differentiation in segments.

Risks of Focus Risks of Focus The focus strategy is The focus strategy is imitated: imitated: The target segment becomes The target segment becomes structurally unattractive: structurally unattractive: Structure erodes. Structure erodes. Demand disappears. Demand disappears. Broadly targeted competitors Broadly targeted competitors overwhelm the segment: overwhelm the segment: The segments The segmentsother differences from differences from segments narrow. other segments narrow. The advantages of a broadadvantages of a The line increase. Newbroad line subsegment focusers increase. New focusers subsegment the industry. the industry.

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8 Dimensions of Quality

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Competitive Strategy

Industry Structure -Fragmented Industry Consolidated Industry

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Competitive Tactics

Timing Tactics -First mover Late movers

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Organizational Life Cycle

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Competitive Tactics

Market Location Tactics -Frontal Assault (aim for strengths) Flanking Maneuver (aim for weaknesses) Bypass Attack (End-run offensive) Encirclement (pre-emptive strike) Guerrilla Warfare

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Competitive Tactics

Defensive Tactics -Raise structural barriers Increase expected retaliation Lower the inducement for attack

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Cooperative Strategies

Collusion Strategic Alliances Mutual service consortia Joint ventures Licensing arrangements Value-chain partnerships

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Cooperative Strategies

Why Are Strategic Alliances Formed?

To collaborate on technology development or new product development To fill gaps in technical or manufacturing expertise To acquire new competencies

To improve supply chain efficiency

To gain economies of scale in production and/or marketing To acquire or improve market access via joint marketing agreements
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